SEOUL-- Samsung Electronics Co. said Wednesday that it had
acquired a U.S. startup whose technology is likely to underpin the
South Korean technology giant's new mobile-payment service.
The deal to buy LoopPay Inc. of Burlington, Mass., represents
the clearest signal that Samsung intends to compete aggressively
with Apple Inc. in trying to change consumer behavior at the
checkout counter.
For Samsung, the LoopPay acquisition marks a further foray into
building up an ecosystem of software and services that can set its
smartphones apart from an increasingly crowded field of handset
makers running Google's Android platform.
"We've been very focused on the next generation of software and
services, " said David Eun, the Samsung executive who spearheaded
the deal. In an interview, Mr. Eun said LoopPay would join
Samsung's mobile division, which is building a platform to provide
consumer services related to payments, including tracking loyalty
points and spending habits.
The acquisition of LoopPay for an undisclosed amount will pit
the South Korean smartphone maker against other technology giants
with mobile payment services, including Google Inc., eBay Inc.'s
PayPal and Apple Pay, which started in the U.S. last fall.
Like many of the other offerings on the market, LoopPay's
technology would allow a smartphone to be used as a virtual wallet
for credit and debit cards.
LoopPay's technology, however, purports to sidestep one obstacle
that has so far hindered the wide adoption of mobile-payment
services: the need for merchants to have to upgrade their checkout
devices. Instead, LoopPay says its magnetic induction technology
allows a smartphone to be tapped against the magnetic-stripe-reader
machine that is already found in the vast majority of U.S. retail
stores.
Samsung's service, which is expected to be launched when Samsung
unveils its Galaxy S6 smartphone in Barcelona in about a week's
time, would allow a consumer to register his credit, debit, gift
and loyalty cards onto his Samsung smartphone, and use the handset
to make purchases, instead of carrying the cards in a physical
wallet.
Analysts say a number of kinks still need to be worked out. But
if the technology works as promised, it could give Samsung an edge
compared with rivals who have struggled to persuade merchants to
upgrade checkout devices to accommodate the near-field
communication, or NFC, technology that powers services like Apple
Pay and Google Wallet.
Some big U.S. retailers are backing an alternative mobile wallet
solution called CurrentC, which will be rolled out this year and
relies on a different technology. Some members of that consortium,
which include Wal-Mart Stores Inc., Target Corp., CVS Health Corp.
and Rite Aid Corp., have quietly turned off their NFC readers to
block Apple Pay and other alternatives.
Apple Pay last month said its service is available at more than
220,000 locations in the U.S.--still just a fraction of the
country's estimated 12 million checkout points. By contrast,
LoopPay chief executive and co-founder Will Graylin estimates that
magnetic swipe readers are available at 90% of the country's
checkout counters.
"The infrastructure laid out over the last four decades is like
the railroad tracks that took decades to lay," Mr. Graylin said.
"We're building on the existing rails, and it reaches its
destination now."
Bryan Yeager, an analyst at research firm eMarketer, said
LoopPay's solution, even if it works as smoothly as promised, could
prove to be no more than a "stopgap measure"--particularly if
merchants end up embracing NFC card readers that can support Apple
Pay and other mobile-payment services.
The LoopPay acquisition is the second high-profile deal Mr. Eun
has led for Samsung in the past six months. Last August, Samsung
acquired SmartThings, a Washington, D.C.,-based startup that helps
connect home appliances to one another.
Mr. Eun said Samsung first approached LoopPay in late 2013, when
LoopPay was but a Kickstarter campaign. The South Korean company
invested in July alongside Visa Inc. and Synchrony Financial, the
U.S.'s largest issuer of credit cards branded by retailers such as
Wal-Mart and Amazon.com Inc.
Margaret Keane, president and chief executive of Synchrony
Financial, said that while her company, formerly the consumer
retail arm of General Electric Co., works with other mobile payment
services like Apple Pay, she was impressed by LoopPay's focus on
making things easy for retailers.
"They really understood the merchant, and that piece has been
missing," she said in an interview.
Christophe Uzureau, a vice president of research at Gartner who
specializes in mobile payments, said the key question would be
whether Samsung has "the muscle and the commitment" to build a
full-scale platform and to foster the right relationships with
financial-services firms, and not offer a product that is "purely a
reaction to Apple Pay."
Write to Jonathan Cheng at jonathan.cheng@wsj.com
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